Last Friday, we held the first State of the Nation Conference to look at the state of the IFA world....
Last Friday, we held the first State of the Nation Conference to look at the state of the IFA world. Reports of the sector's demise are, as Mark Twain once said, greatly exaggerated.
While the issues are important and challenging at a micro level for product providers and distributors, the real challenges are at a macro level for governments.
All the reports and discussion papers issued on the question of closing the savings gap miss a very important point: the last thing the UK economy, and hence the UK stock market, needs is for people to save more. As individuals, we might need to do that in the long term, but the economy and the Government's economic strategy is based on keeping the British consumer happy and spending.
The UK has transformed itself during the course of the past 50 years from manufacturer to net importer and now relies on services and a buoyant consumer for UK stocks to perform. This is the two-speed economy we have heard so much about. The most important part of the GDP of the UK is consumer spending, and it is not alone. In the US, consumption makes up 70% of GDP.
Any decline in consumer spending would have far- reaching consequences, including the creation of a genuine fear that equity-based investments will not deliver long-term gains for investors. Imagine a world in which bonds or cash-based investments form the core holding of a long-term pension strategy, or at the very least property becomes far more important.
The Government may be paying lip service to closing the savings gap but has hardly shown itself committed to the cause. Raiding the nation's pension funds for tax revenue is proof enough of that, as is its unwillingness to extend the dividend credit on Isas.
The Pensions Policy Institute last week suggested the general population work longer to close the gap. But while that will feed through to stronger consumer spending, it won't necessarily enhance savings. The challenge is for the Government to balance the need for long-term saving with short-term consumer spending. It's a genuine challenge and unfortunately 'tinkering' with tax breaks or introducing unworkable and unprofitable schemes like stakeholder is not the answer.
The state of the nation is not that bad; it's tough but so is the whole economy. Yet with some original and innovative thinking, things can only get better ' or have we heard that all before?
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